What to Watch When GameStop Reports After the Close

GameStop Corp. (NYSE: GME) is scheduled to release its fiscal second-quarter financial results after the markets close on Tuesday. The consensus estimates are calling for a net loss of $0.21 per share and $1.34 billion in revenue. The same period of last year reportedly had $0.05 in EPS and $1.65 billion in revenue.

Even with over 5,700 locations, this chain saw a massive revenue drop in the first quarter. GameStop’s revenue plunged over 13% to $1.5 billion, and comparable store sales dropped more than 10%.

The most brutal drop in the quarter was in the category of new game hardware. It fell 35%, “with an increase in Nintendo Switch sales more than offset by a decline in Xbox One and PlayStation 4 console sales,” said the company. Digital sales, which GameStop needs for a turnaround, fell 6.7%. GameStop’s net income was $7.5 million, which means it operates on razor-thin margins.

At the same time, GameStop’s forecasts for the current year were barely better. Revenue may drop as much as 10%, as is the case with same-store sales, according to management’s forecast. There may be no end in sight to its deteriorating business.

Excluding Tuesday’s move, GameStop had underperformed the broad markets, with its stock down 62% year to date. In the past 52 weeks, the stock was down closer to 70%.

A few analysts weighed in on GameStop ahead of the report:

  • Wedbush has a Buy rating with a $9 price target.
  • Loop Capital has a Hold rating with a $4 price target.
  • Merrill Lynch rates it as Underperform with a $2.50 price target.
  • Ascendiant Capital Markets has a Hold rating and a $4 target price.

Shares of GameStop traded down nearly 3% to $4.63 Tuesday morning. The 52-week range is $3.15 to $17.04, and the consensus price target is $5.

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